The Impact of Federal Housing Policy on Housing Demand and Homeownership: Evidence from a Quasi-Experiment

46 Pages Posted: 15 Jan 2018

See all articles by Morris A. Davis

Morris A. Davis

Rutgers Business School

Stephen D. Oliner

American Enterprise Institute

Tobias Peter

American Enterprise Institute (AEI)

Edward Pinto

American Enterprise Institute (AEI)

Date Written: January 10, 2018

Abstract

Federal housing policy promotes homeownership by subsidizing mortgage debt for many households with few assets and low credit scores. In this paper, we exploit the Federal Housing Administration’s (FHA’s) surprise 50 basis point cut to its annual mortgage insurance premium in January 2015 to study the impact of federal housing policy and interest rates on housing demand for a population of households likely to be influenced by changes to policy. The premium cut, which reduced monthly payments the same amount as a three-quarter percentage point drop in the mortgage rate, increased the purchasing power of the typical FHA borrower by 6 percent. Our analysis suggests FHA borrowers increased the value of the housing they purchased by 2.5 percentage points relative to a control group of borrowers in areas with minimal FHA presence. The rise in spending reflected an increase in constant-quality home prices, with no significant change in the quality of housing purchased by FHA buyers. We also estimate that the premium cut induced approximately 17,000 households to become first-time homebuyers in the initial year after the cut, an increase that fell far short of the FHA’s projection. Because the rise in constant-quality house prices affected both FHA and other buyers in areas with substantial FHA lending, non-FHA first-time buyers as a group incurred a cost of $180,000 for each of the 17,000 new first-time FHA buyers.

Keywords: Housing Demand, House Values, Housing Policy, FHA

Suggested Citation

Davis, Morris A. and Oliner, Stephen D. and Peter, Tobias and Pinto, Edward, The Impact of Federal Housing Policy on Housing Demand and Homeownership: Evidence from a Quasi-Experiment (January 10, 2018). Available at SSRN: https://ssrn.com/abstract=3099665 or http://dx.doi.org/10.2139/ssrn.3099665

Morris A. Davis (Contact Author)

Rutgers Business School ( email )

Rutgers Business School
One Washington Park #1092
Newark, NJ 07102
United States

Stephen D. Oliner

American Enterprise Institute ( email )

1150 17th Street, N.W.
Washington, DC 20036
United States
2024195205 (Phone)

HOME PAGE: http://www.aei.org/scholar/stephen-d-oliner/

Tobias Peter

American Enterprise Institute (AEI) ( email )

1150 17th Street, N.W.
Washington, DC 20036
United States

Edward Pinto

American Enterprise Institute (AEI) ( email )

1150 17th Street, N.W.
Washington, DC 20036
United States
240-423-2848 (Phone)

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